EXERCISE 14-3 Calculating Free Cash Flow (L014-3] Apex Company prepared the statement of cash flows for the current year that is shown below: i $ 40,000 (6,000 34,000 Apex Company Statement of Cash Flows-Indirect Method Operating activities: Net income ................................ Adjustments to convert net income to cash basis: Depreciation ...... $ 22,000 Increase in accounts receivable .......... (60,000) Increase in inventory .... (25,000) Decrease in prepaid expenses .......... 9,000 Increase in accounts payable ............... 55,000 Decrease in accrued liabilities .......... (12,000) Increase in income taxes payable ......... 5,000 Net cash provided by operating activities ......... Investing activities: Proceeds from the sale of equipment ............. 14,000 Loan to Thomas Company ........ (40,000) Additions to plant and equipment ................ (110,000 Net cash used for investing activities ......... Financing activities: Increase in bonds payable .. 90,000 Increase in common stock ........... 40,000 Cash dividends (30,000) Net cash provided by financing activities. Net decrease in cash ..... Beginning cash balance........... Ending cash balance ...................... (136,000) 100,000 (2,000) 27,000 $ 25,000 Required: Compute Apex Company's free cash flow for the current year.
Related questions
| Comparative financial statement data for Carmono Company follow: |
| This Year | Last Year | |||
| Assets | ||||
| Cash | $ | 7.50 | $ | 14.00 |
| Accounts receivable | 50.00 | 43.00 | ||
| Inventory | 92.50 | 79.20 | ||
| Total current assets | 150.00 | 136.20 | ||
| Property, plant, and equipment | 231.00 | 194.00 | ||
| Less accumulated depreciation | 45.60 | 34.20 | ||
| Net property, plant, and equipment | 185.40 | 159.80 | ||
| Total assets | $ | 335.40 | $ | 296.00 |
| Liabilities and Stockholdersâ Equity | ||||
| Accounts payable | $ | 55.50 | $ | 46.00 |
| Common stock | 118.00 | 91.00 | ||
| Retained earnings | 161.90 | 159.00 | ||
| Total liabilities and stockholdersâ equity | $ | 335.40 | $ | 296.00 |
| For this year, the company reported net income as follows: |
| Sales | $ | 850.00 |
| Cost of goods sold | 510.00 | |
| Gross margin | 340.00 | |
| Selling and administrative expenses | 320.00 | |
| Net income | $ | 20.00 |
| This year Carmono declared and paid a cash dividend. There were no sales of property, plant, and equipment during this year. The company did not repurchase any of its own stock this year. Carmono CompanyStatement of Cash Flows - Indirect MethodFor This Year Ended December 31Operating activities:Net income$20.00Adjustments to convert net income to a cash basis:Depreciation$11.40Increase in accounts receivable(7.00)Increase in inventory(13.30)Increase in accounts payable9.500.60Net cash provided by operating activities20.60Investing activities:Increase in plant and equipment(37.00)Net cash used in investing activities(37.00)Financing activities:Increase in common stock27.00Cash dividends(17.10)Net cash provided by financing activities9.90Net decrease in cash(6.50)Beginning cash and cash equivalents14.00Ending cash and cash equivalents$7.50 |
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| 2. | Compute Carmonoâs free cash flow for this year. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.) |
Free cash flow$
3.
| Changes in various accounts and gains and losses on the sale of assets during the year for Argon Company are given below: |
| Item | Amount | ||
| Accounts receivable | $ | 79,000 | decrease |
| Inventory | $ | 120,000 | increase |
| Prepaid expenses | $ | 3,500 | decrease |
| Accounts payable | $ | 41,000 | decrease |
| Accrued liabilities | $ | 9,600 | increase |
| Income taxes payable | $ | 15,700 | increase |
| Sale of equipment | $ | 8,100 | gain |
| Sale of long-term investments | $ | 12,200 | loss |
| Required: |
| For each item, indicate whether the dollar amount should be added to or deducted from net income under the indirect method when computing the net cash provided by operating activities for the year. |
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4.
| Apex Company prepared the statement of cash flows for the current year that is shown below: |
| Apex Company Statement of Cash FlowsâIndirect Method | ||||
| Operating activities: | ||||
| Net income | $ | 41,500 | ||
| Adjustments to convert net income to cash basis: | ||||
| Depreciation | $ | 20,100 | ||
| Increase in accounts receivable | (61,500) | |||
| Increase in inventory | (25,100) | |||
| Decrease in prepaid expenses | 9,400 | |||
| Increase in accounts payable | 54,300 | |||
| Decrease in accrued liabilities | (10,100) | |||
| Increase in income taxes payable | 3,300 | (9,600) | ||
| Net cash provided by operating activities | 31,900 | |||
| Investing activities: | ||||
| Proceeds from the sale of equipment | 15,200 | |||
| Loan to Thomas Company | (41,900) | |||
| Additions to plant and equipment | (121,800) | |||
| Net cash used for investing activities | (148,500) | |||
| Financing activities: | ||||
| Increase in bonds payable | 88,800 | |||
| Increase in common stock | 38,700 | |||
| Cash dividends | (28,400) | |||
| Net cash provided by financing activities | 99,100 | |||
| Net decrease in cash | (17,500) | |||
| Beginning cash balance | 27,200 | |||
| Ending cash balance | $ | 9,700 | ||
| Required: |
| Compute Apex Companyâs free cash flow for the current year. (Negative amount should be indicated by a minus sign.) |
Free Cash Flow
5.
| For the just completed year, Hanna Company had net income of $95,000. Balances in the companyâs current asset and current liability accounts at the beginning and end of the year were as follows: |
| December 31 | ||||
| End of Year | Beginning of Year | |||
| Current assets: | ||||
| Cash | $ | 59,000 | $ | 80,000 |
| Accounts receivable | $ | 164,000 | $ | 184,000 |
| Inventory | $ | 448,000 | $ | 346,000 |
| Prepaid expenses | $ | 11,500 | $ | 15,000 |
| Current liabilities: | ||||
| Accounts payable | $ | 366,000 | $ | 392,000 |
| Accrued liabilities | $ | 8,000 | $ | 13,000 |
| Income taxes payable | $ | 32,000 | $ | 25,000 |
| The Accumulated Depreciation account had total credits of $42,000 during the year. Hanna Company did not record any gains or losses during the year. |
| Required: |
| Use the indirect method to determine the net cash provided by (or used in) operating activities for the year. (List any deduction in cash and cash outflows as negative amounts.) |
